Britain’s high streets are in a state of generational change. According to a recent survey from PwC some 16 stores a day closed in the first half of 2014. Footfall on our high streets is declining, as consumers increasingly demand instant access and engagement through mobile, social media and online transactions. In the digital age, businesses know they have to adapt or risk being left behind. Lessons can be learnt from the recent troubles of one of the high streets long-standing occupants – the retail bank. 

Hindered by outdated legacy IT systems, traditional high street banks have been slow to embrace the digital revolution and are now paying the price for it. The recent announcement from Lloyds Banking Group that it will axe 9,000 jobs and close around 200 of its branches is symbolic of a wider trend. Research conducted by CACI, a consultancy used by all of Britain’s six largest banks, found that customer trends pointed towards the likely closure of between 50 and 75 per cent of all branches by 2024.

While Lloyds and other major high street banks are claiming that job cuts and the closure of branches are part of a move towards a more ‘digital strategy,’ this is largely a smokescreen for cutting the costs of customer interaction. With increasing regulatory pressure, growing demand for online banking and squeezed profit margins due to low interest rates, high street banks are scrambling to cut costs in a move to less resource-heavy model.

Rather than using the growing consumer trend towards digital as an excuse to cut costs, the banking industry should be looking to make digital technology a fundamental element of its customer offering.

Social media is a particularly important digital channel that can be used to engage with customers and cultivate brand loyalty.  However, a recent survey from US consultancy Carlisle & Gallagher, showed 87 per cent of bank customers found banks use of social media “annoying, boring or unhelpful.”

Despite their best efforts, traditional high street banks are failing to engage with customers over social media as they struggle with the very premise of which the communication channel is based on – transparency. According to the initial investigation from the CMA, many consumers are confused by the lack of differentiation of banks products and services. This is the result of confusing information, especially around current account charges.

The banks failure to gain traction with social media’s most avid users is also affecting engagement levels. The so-called ‘millennial’ generation are the most active users of social media but are also know for having a strong distrust and lack of loyalty towards the current retail banks.

A recent Accenture study into the customers of the main retail banks revealed that less than a third of 18-24 year-olds consider their bank fair and transparent. Additionally, they are more likely to switch accounts, demonstrating a lack of brand loyalty. The traditional banks historical failure to engage with the youth market will make it hard for them to re-engage with them over social media.

Nevertheless, when used correctly, social media channels provide an engaging means of communicating information with customers and vice versa. In September, I hosted Ffrees’ first live Twitter Q&A session with our customers, offering them the opportunity to question the CEO– something they could not have gained by walking into a high street branch. More importantly, the session proved to be a valuable information gathering and feedback session with our customers.

The new retail banking model will be based on the delivery of services rather products. And these services will not just be bank branded but will be apps that link to the core account, with the user permissions. And with the UK competition regulator set to launch a full enquiry into competition in the UK’s banking sector later this year, there is a growing opportunity for banks to differentiate themselves through the use of social media.

When it comes to social media, the retail banking industry can learn from brands in other sectors. Amazon’s ‘Mayday’ video customer service offering and Burberry’s tweetwall initiative, allowing customers to get a sneak preview of the latest items before they hit the catwalk, are just two examples which could inspire the banking the industry. As a number of banks continue to close down their retail stores, it is plausible that we could soon be speaking to a banking advisor via video link.

Closer to home, the traditional retail banks should also draw inspiration from the digital practices of some of the country's emerging Fintech companies.  Purely digital current account providers and crowd funding platforms not only provide examples of successful companies with digital at their core but are also proof of an increasing demand for a fresh, digital offering.  

A persistent culture of innovation is critical to the future success of the industry. Social media should form an important part of any banks digital customer offering. While the high street bank will not completely disappear, there is a growing opportunity for challenger banks to deliver what the industry requires – a fundamental new model for banking with digital innovation at the core.